Gold Weakens as Fed Keeps Metal Markets on Edge

Gold prices continued to weaken on Thursday, trading below $1,700, as the prospect of further rate hikes by the Federal Reserve kept the metal markets under pressure.

Spot gold lost 0.4% to $1,690.61 per ounce, having closed at $1,697.42 in the previous session, while gold futures were down 0.5% to $1,699.75.

The declines in both instruments were mainly due to the US producer price index (PPI) registering a drop for the second straight month in August.

Fed Hawkish Measures Pressuring Metal Markets

The Bureau of Labor Statistics (BLS) on Wednesday reported that US PPI slipped 0.1% in August. On the other hand, PPI, excluding food and energy, climbed 0.2%.

On an annual basis, the US headline PPI was up 8.7% year-over-year in the previous month, which was lower than the 9.8% increase in July and the lowest annual surge since August 2021.

In addition, the core PPI reading of a 5.6% increase in the same period ended similarly to the lowest rate since June 2021.

The data reinforced that inflation stayed close to 40-year highs last month. That could prompt the Fed to continue raising interest rates sharply to curb unexpectedly high prices in the world’s largest economy.

Financial markets across the globe have posted sharp losses on Tuesday and Wednesday due to the US consumer price index (CPI) hitting 8.3% in August. The higher-than-expected data has also recently put copper prices in the muted territory after two straight losing sessions.

Traders now expect the Fed to make a full percentage-point interest rate hike next week, although they expect more of a third 75-basis-point increase.

Gold is currently $15 above its lowest levels this year, as the Fed’s consecutive steep rate hikes strengthened the US dollar and pushed investors to bet on the greenback and Treasuries. The precious yellow metal was also unable to keep up with the country’s current inflation.

Bullion prices may continue to come short for the rest of 2022, considering market players see the Fed’s benchmark interest rates reaching 4% by the end of the year.